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There are a bunch of slight tax changes for 2016, and one big one in particular you need to be aware of.

Inflation was extremely low in 2015, and as a result, it wasn't necessary to adjust the tax brackets and other tax items by much for 2016. However, some slight adjustments were made, and there is one big tax change in particular you need to know about.

2016 tax brackets have changed slightlyDue to a lack of inflation, the 2016 tax brackets haven't changed tremendously from 2015. However, they have been adjusted slightly upward -- by about 0.5%.

Tax rate

Single

Married Filing Jointly

Married Filing Separately

Head of Household

10%

$0-$9,275

$0-$18,550

$0-$9,275

$0-$13,250

15%

$9,276-$37,650

$18,551-$75,300

$9,276-$37,650

$13,251-$50,400

25%

$37,651-$91,150

$75,301-$151,900

$37,651-$75,950

$50,401-$130,150

28%

$91,151-$190,150

$151,901-$231,450

$75,951-$115,725

$130,151-$210,800

33%

$190,151-$413,350

$231,451-$413,350

$115,726-$206,675

$210,801-$413,350

35%

$413,351-$415,050

$413,351-$466,950

$206,676-$233,475

$413,351-$441,000

39.6%

$415,051 and above

$466,951 and above

$233,476 and above

$441,001 and above

In addition, the personal exemption amount has been increased by $50 to $4,050. As far as standard deduction amounts are concerned -- the deductions used by taxpayers who choose not to itemize -- all but one remains the same as last year.

Filing status

2016 Standard Deduction Amount

Single

$6,300

Married filing jointly

$12,600

Married filing separately

$6,300

Head of household

$9,300 (increase of $50)

Surviving spouse

$12,600

The slight increases in the tax brackets and exemptions should result in the average family's tax liability falling by a few dollars. However, keep in mind that the idea behind increasing the tax brackets annually is to compensate for inflation, which (theoretically) translates to higher wages. So, the increases should produce no net effect in tax liability for a family whose income has risen at the same rate as the tax brackets, deductions, and exemptions.

One major change you need to know aboutBy far the biggest 2016 tax change is the Affordable Care Act penalty for not maintaining adequate health coverage throughout the year. As you can see from the chart below, the increase for 2016 is quite high.

Tax Year

Individual Penalty

Or... (If Greater)

Family Maximum

2014

$95 per adult

1% of income above the filing threshold

$285

2015

$285 per adult

2% of income above the filing threshold

$975

2016

$695 per adult

2.5% of income above the filing threshold

$2,085

Now, this may seem confusing, so if you're curious about how much your penalty could be, the website taxpolicycenter.org has a calculator that can help you estimate yours. You can also view a list of exemptions here.

Other notable 2016 tax changesThere are a few other tax changes for 2016, and all of these are small inflationary adjustments, just as we saw with the tax brackets.

Families can now contribute up to $6,750 to a health savings account (HSA), an increase of $100 over 2015. However, the individual contribution limit of $3,350 remains the same.

The maximum earned income tax credit (EITC) has increased slightly for 2016.

Number of Children in Household

Maximum EITC

Increase From 2015

0

$506

$3

1

$3,373

$14

2

$5,572

$24

3 or more

$6,269

$27

The alternative minimum tax (AMT) exemption has risen to $53,900 and $83,800 for single and joint filers, respectively. This represents an increase of $300 (single) and $500 (joint) from 2015.

The lifetime estate tax exemption rises by $20,000 to $5.45 million for 2016.

Some of the income thresholds having to do with retirement contributions have been increased, although all contribution limits remain the same.

The biggest tax changes could be yet to comeThere are a few tax breaks that expired at the end of last year, which have not yet been renewed. This includes such popular items as state sales tax deductions, educator expenses, and the mortgage insurance deduction. As of this writing, these have not been renewed, but it's likely they will be extended for the 2016 tax year or beyond. Still, it's worth paying attention to this -- after all, it's never guaranteed that lawmakers will agree on anything.

The Foolish bottom line2016 isn't exactly a year full of major tax changes, but there have been a few modifications worth noting. The Affordable Care Act penalty is by far the most significant, and if you are uninsured, it's probably a good idea to figure out how much your penalty could be in 2016, and whether or not the cost would be comparable to simply buying insurance.

Other than that, the impact of the small adjustments to the tax brackets and other items mentioned here may put a few extra dollars in your pocket, but they are unlikely to have a noticeably large impact.

Author

Matt is a Certified Financial Planner based in South Carolina who has been writing for The Motley Fool since 2012. Matt specializes in writing about bank stocks, REITs, and personal finance, but he loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!
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